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Bureau of Mines Information Circular/1987 



Economic Evaluation Methodology 



By Frank A. Peters 



UNITED STATES DEPARTMENT OF THE INTERIOR 



Information Circular 9147 

V 



Economic Evaluation Methodology 



By Frank A. Peters 




UNITED STATES DEPARTMENT OF THE INTERIOR 
Donald Paul Hodel, Secretary 

BUREAU OF MINES 

David S. Brown, Acting Director 













Library of Congress Cataloging in Publication Data: 



Peters, Frank A.^ 1931- 

Economic evaluation methodology. 

(Information circular ; 9147) 

Supt. of Docs, no.: I 28.27: 9147. 

1. Mines and mineral resources- United States-Costs. 2. Engineering economy -United 
States. 3. Technology transfer- United States. I. Title. II. Series: Information circular 
(United States. Bureau of Mines) ; 9147. 



TN295.U4 [TN272] 622 s [622'.068'] 87-600014 



CONTENTS 

Page 

Abstract 1 

Introduction 2 

Estimating accuracy 2 

Evaluation techniques 4 

Flowsheet development 4 

Material and heat calculations 5 

Equipment sizing 5 

Capital costs ,. 5 

Fixed capital 6 

Working capital 9 

Capitalized startup 9 

Operating costs 10 

Direct 10 

Indirect 12 

Fixed 12 

Profitability 12 

Use of economic evaluations 12 

References 14 

Appendix A. — Heat calculations 15 

Appendix B. — Items included in capital cost components 16 

Appendix C. — Items included in operating cost components 20 

ILLUSTRATIONS 

1. Process evaluation steps 4 

2. Cost of horizontal vacuum belt filters 6 

3. Equipment cost summary table format 7 

4. Estimated capital cost table format 8 

5. Capital expenditure-time relation curve 9 

6. Estimated annual operating cost table format 11 

A-l. Example of heat calculation 15 

TABLE 

1. Multipliers for labor assignments 12 





UNIT OF MEASURE ABBREVIATIONS USED 


IN THIS 


REPORT 


Btu 


British thermal unit 


h 


hour 


cal/g-deg K 


calorie per gram- 
degree Kelvin 


kW«h 


kilowatt hour 






lb 


pound 


°C 


degree Celsius 










Mgal 


thousand gallons 


DPW 


day per week. 










MMBtu 


million British 


d/yr 


day per year 




thermal units 


°F 


degree Fahrenheit 


pet 


percent 


ft 


foot 


St 


short ton 


gal 


gallon 


yr 


year 



ECONOMIC EVALUATION METHODOLOGY 

By Frank A. Peters 1 



ABSTRACT 

This description of process evaluation techniques used by the Bureau 
of Mines for studying proposed processing techniques has been prepared 
to provide those interested in using these studies with an understanding 
of the methodology. The methods used for preparing both capital and 
operating cost estimates are described. Each step in preparing the 
evaluations is described. Types of equipment costs are shown and fac- 
tors used in the estimates are defined. Uses of the estimates are sug- 
gested and several examples are included. The accuracy of various types 
of estimates is discussed, along with an explanation of the reason for 
selecting the type used in the Bureau's process evaluation studies. 



'Chief, Process Evaluation, Bureau of Mines, Washington, DC. 



INTRODUCTION 



The role of process evaluation in the 
Bureau of Mines research is twofold. 
Its primary function is to provide ad- 
ditional information for guiding the re- 
search programs, with a secondary func- 
tion of aiding technology transfer to 
industry. This report describes evalua- 
tion techniques used by the Bureau for 
those interested in using the studies. 
Thus, both Bureau researchers and the 
general public will have an understanding 
of the estimating accuracy, how to modify 
the estimated costs, and the use of the 
evaluations. 

In conducting research programs, pro- 
cess evaluations are performed in the 
early stages of research. Raw data from 
laboratory and bench-scale research are 
extrapolated to provide a basis for de- 
signing industrial-scale operations. 
Next, preliminary capital and operating 
costs for each operation are estimated. 
From this information, specific steps in 
the operations can be targeted for ad- 
ditional research, and plans can be modi- 
fied to examine these areas in greater 
detail. After additional research is 
conducted, additional process evaluations 
are performed to provide further guid- 
ance. With repeated interaction and 
feedback between research and pro- 
cess evaluation personnel, the Bureau's 
research is focussed on areas criti- 
cal to development of economically and 
technically feasible processes. 

The Process Evaluation group examines 
the research from a varied and de- 
tached perspective. Each technology 



under investigation is projected from a 
laboratory scale to a commercial-plant 
scale. Problems and their solutions be- 
come more apparent from this perspective. 
In addition, engineers working in process 
evaluation are familiar with a broad 
range of technologies spanning the miner- 
als industry; therefore, modifications 
or alternate technologies that might 
have been overlooked are frequently 
suggested. 

Various types of information, vital in 
developing viable solutions to mineral 
problems, are presented in each evalua- 
tion. By examining individual process- 
ing steps, high-cost operations are 
determined and then investigated by re- 
search personnel to devise process modi- 
fications to reduce the cost of these 
operations. Process evaluation studies 
also identify and rank in importance 
areas in which additional research data 
are needed, both from a technical and a 
cost standpoint. In addition, performing 
process evaluations allows process vari- 
ations to be compared and their relative 
worth assessed. Both similar and dis- 
similar operations can be contrasted, 
using cost as a common denominator. 

Process costs are the primary means of 
comparing competitive technologies. 
Therefore, the availability of this in- 
formation makes the research accomplish- 
ments more useful to industry and speeds 
their adoption. To aid technology trans- 
fer to industry, economic evaluations are 
published independently or included in 
publications describing the research. 



ESTIMATING ACCURACY 



The accuracy of cost estimates is dif- 
ficult to define because there are a 
large number of unknowns; for example, 
the accuracy of the laboratory data and 
of the scale-up techniques. Materials 
often behave differently on a laboratory 
scale than they do on a commercial-plant 
scale, otherwise, pilot plants would not 
be needed. Thus, the incomplete data 
from laboratory investigations and the 



scale-up problems introduce potential 
errors in the cost analysis. Another 
important factor is the accuracy of the 
cost data and the costing techniques used 
in the studies. 

Unfortunately, cost estimation is an 
art, not a science. No two estimators 
arrive at exactly the same results. The 
results depend as much on the skill of 
the estimator as on the technique used. 



In an effort to define the accuracy of 
the estimate, many engineers compare 
their evaluation techniques with pub- 
lished outlines. Perhaps the most widely 
used reference is published in the Chemi- 
cal Engineers' Handbook (_1_).2 

The five capital cost estimating types 
and their accuracy percents are — 

1. Firm, ±5% 

2. Project control, ±10% 

3. Budget, ±20% 

4. Study, ±30% 

5. Or der-of -magnitude, no assigned 

accuracy. 

A firm estimate is the most accurate 
and is based on final drawings, detailed 
equipment specifications, price quota- 
tions, and site surveys. Project control 
estimates are based on complete equipment 
lists, engineering flowsheets, and equip- 
ment layouts. Site-specific information 
and auxiliary facilities information are 
required. A budget estimate requires 
more information than a study estimate 
and, with sufficient data, its accuracy 
may approach that of a project control 
estimate. It requires a carefully evalu- 
ated flowsheet, a detailed equipment 
list, and site information. Study esti- 
mates are prepared from a flowsheet and a 
minimum of equipment data. Other costs 
are determined using factors. Order- 
of-magnitude estimates, the least ac- 
curate of the five types, are prepared 
without a flowsheet or a detailed list of 
equipment. Often, the estimate is pre- 
pared by comparing the proposed process 
with a known one. 

Because Bureau estimates are prepared 
during laboratory research, insufficient 
data are available for making the de- 
tailed calculations necessary for a 

2 Underlined numbers in parentheses re- 
fer to items in the list of references 
preceding the appendixes. 



budget-type estimate. Thus, the study- 
type estimate was selected as the method 
that could most benefit the Bureau's pro- 
gram. This estimate can be expected to 
be within 30 pet of the actual plant 
cost. However, recent studies on first- 
of-a-kind plants show that this accuracy 
prediction is deceptive. Changes in 
the process, resulting from additional 
research studies, will probably require 
that the evaluation be updated as more 
information becomes available. 

Cost estimators do not attempt to de- 
fine the accuracy of operating cost esti- 
mates on a general basis. However, an 
inspection of the operating cost items, 
together with an estimate of the accuracy 
of each one, permits an estimation of the 
overall operating cost accuracy. Each 
raw material, utility, labor, and capital 
cost item must be considered. Obviously, 
when working from data reported in the 
literature, as occurs in many evalua- 
tions, it is almost impossible to define 
the accuracy of some of the data and thus 
is very difficult to determine the ac- 
curacy of the operating costs. However, 
if the various utility and labor rates 
are adjusted for location, it is unlikely 
that the operating cost will vary by more 
than 10 or 15 pet. 

Calculations using data obtained in the 
laboratory and from the literature are 
used in the cost studies. Factors de- 
rived from other cost estimates and rec- 
ommended values obtained from the litera- 
ture are also used. In preparing the 
estimates, plant site or location is not 
considered; however, considerations such 
as nearness to raw material supply are 
included. A general location is often 
selected so that area-specific air and 
wet-bulb temperatures can be included in 
heat calculations. 

The tables reporting the results are 
prepared to allow any company or individ- 
ual interested in the process to easily 
change factors, utility rates, labor 
rates, or raw material costs to ob- 
tain costs for a specific location and 
company. 



. 



EVALUATION TECHNIQUES 



Because most Bureau of Mines process 
development is in the early laboratory or 
bench-scale research stage, a cost- 
estimating technique that requires little 
data is needed. Detailed estimates and 
equipment designs that a company would 
prepare before building a plant could not 
be made. Thus, a factoring technique is 
used. Equipment is sized using a minimum 
of engineering and cost-capacity data. 
Installation and other plant costs are 
developed from factors. An indepth dis- 
cussion of factored cost-estimation tech- 
niques is published in the literature 
(2). 

This type of capital cost estimate 
matches that of a study estimate (1_), and 
is expected to have the same accuracy. 
The major steps for preparing an evalua- 
tion are shown in figure 1. 

Before any calculations are started, it 
is necessary to determine what data are 
available from research or pilot-plant 
operations and from the literature. It 
must also be determined where a proposed 
process would fit into present-day 
practice. 

A plant size for the proposed process 
is selected, depending on the size of the 
industry and present-day commercial 
plants. More than one plant size may be 
considered. Also, the raw material de- 
posit must contain sufficient material to 
justify the selected plant size. 

FLOWSHEET DEVELOPMENT 

The first step in making an evaluation 
is to prepare a process flowsheet showing 
each major step. Usually, research per- 
sonnel provide a flowsheet; however, it 
often lacks processing steps, such as 
size reduction of ore, which is neces- 
sary for a complete plant description. 

After considering the data available 
for each step, the necessary assumptions 
for making material and heat balances are 
tabulated. Because most evaluations are 
based on small-scale laboratory work, the 
best type of equipment is selected for 
each operation. An example would be the 



selection of a filter, where the pos- 
sibilities could include the pressure 
leaf, rotary vacuum, or plate and frame. 
Each of these filters would produce cakes 
with different moisture contents and 
washing efficiencies. Thus, the type of 
equipment that would be used in a com- 
mercial plant is considered before com- 
pleting the material balance. 

Develop flowsheet 



1 



Calculate material balance 



I 



Calculate heat requirements 



I 



Equipment sizing 



I 



Estimate capital cost 



I 



Estimate operating cost 



I 



Estimate working capital and startup costs 



1 



Determine potential profitability 



I 



Analyze process from economic standpoint 

FIGURE 1. — Process evaluation steps. 



MATERIAL AND HEAT CALCULATIONS 

The material balance is perhaps the 
most important part of the calculations, 
because all future calculations are based 
on flow rates and material requirements 
from the balance. Information left out 
of these calculations may have a signifi- 
cant effect on the process economics. 
The quantities of all materials entering 
and exiting each unit operation must be 
calculated. All components of each 
stream must be included so they can be 
accounted for in various chemical reac- 
tions. Many times, small quantities of 
impurities are not considered during re- 
search, but if they build up in recycle 
streams and are not treated, they may 
cause unexpected problems in plant-scale 
operations. 

Some of the heat calculations must be 
made while making the material balances, 
but most are determined after the materi- 
al balance is complete. Cooling a pro- 
cess stream by flashing steam or water 
vapor is an example of a heat calculation 
that must be made during material balance 
calculations, because the quantity of 
water lost would be controlled by the 
heat content of the process stream. All 
heat calculations are based on theoreti- 
cal heats of formation and heat-capacity 
data. Laboratory heat usage is almost 
always much higher than plant require- 
ments, because of the large surface area 
per unit volume of small equipment. Heat 
losses are estimated for various types 
and sizes of equipment. These estimated 
losses are based on values obtained from 
the literature and plant experience. 
Because of the extensive calculations 
required in making the heat calculations, 
a computer program is used that utilizes 
data from a table of heats of formation 
and heat capacity. An example of a heat 
calculation is shown in appendix A. As 
shown on the computer printout, heats of 
reaction are calculated at 25° C. The 
heat above or below 25° C entering the 
system in each stream and the heat leav- 
ing the system at the reaction tempera- 
ture are calculated. Heat losses are 
estimated using experience factors for 
each type of equipment. The net heat 
needed or rejected by the system is then 



determined, and the quantity of fuel, 
steam, or cooling water is estimated. 

EQUIPMENT SIZING 

After completing the heat calculations, 
a commercial-size plant must be designed. 
The first step is to size major items of 
equipment, such as kilns, crushers, re- 
action vessels, etc. After determining 
the number and size of each major item, a 
rough equipment layout is prepared so 
that equipment for pumping, conveying, 
feeding etc. , can be sized. 

Sizing or designing of the major equip- 
ment items is performed by using tech- 
niques described in estimating manuals 
and textbooks, using manufacturers cata- 
logs, or requesting size and cost quota- 
tions from manufacturers. When designing 
special equipment items, codes such as 
the ASME Boiler and Pressure Vessel Code 
(3) are used. However, detailed designs 
are seldom needed for equipment costing; 
for example, tanks are sized using the 
flow rate in tons or pounds per day, 
specific gravity, and retention time. 
Additional capacity is added when agita- 
tion is used. Conversely, crushing 
equipment requires considerable data. 
The work index, feed size, product size, 
maximum feed size, feed rate, bulk den- 
sity, and excess capacity must be speci- 
fied. Standard sizing techniques have 
been selected and programmed on personal 
computers to reduce calculation time for 
most of the common types of equipment. 

To size minor equipment items such as 
surge bins, pumps, feeders, and con- 
veyors, distances and heights must be 
estimated from the size and location of 
each major piece of equipment. Using 
flow rates from the material balance, 
together with the distances, heights, and 
material densities and viscosities, the 
pump or conveyor size and energy require- 
ment for transporting the material can be 
estimated. 

CAPITAL COSTS 

Capital costs are divided between fixed 
capital, working capital, and capitalized 
startup. 



Fixed Capital 

After sizing the equipment, its cost 
must be estimated. Many types of equip- 
ment are costed using cost-capacity data 
shown in graphical form. A typical cost- 
capacity curve is shown in figure 2. An 
excellent description of the use of 
this type data is given by Peters and 
Timmerhaus (2). 

Because most textbook cost data are 
old, new curves or equations must be 
developed from recent equipment costs. 
These costs are obtained from price quo- 
tations and published cost data. If the 
equipment is to be manufactured of a 
corrosion-resistant material, its cost 
must be adjusted using a factor or its 
cost obtained for the special material of 
construction. 

Although the costs of most items are 
estimated from cost-capacity equations, 
the costs of unusual or very expensive 
items of equipment are obtained from ven- 
dors. Some equipment costs are also ob- 
tained from cost-estimation services such 
as Richardson (4) and the Mining Cost 
Service (5). 

Because equipment costs change with 
time, the equipment cost is adjusted to 
the current date using an inflation index 
such as the Marshall and Swift (M and S) 
Equipment Cost index, which is found in 
alternate issues of Chemical Engineering . 
Equipment costs are tabulated in a table, 
such as shown in figure 3. 

After estimating equipment costs, the 
next step is to estimate the cost of 
labor for erecting each piece of equip- 
ment. This cost includes removing the 
equipment from a truck, moving it to its 
plant location, setting it up, and align- 
ing the item with a crane if necessary. 
Again, graphs or equations of labor time 
versus equipment size are used to esti- 
mate the number of person hours required. 
The equations have been developed from 
similar installations and data in the 
literature. The number of hours is mul- 
tiplied by the average hourly wage for an 
erection crew. When equipment quotations 
are used, the vendor is asked for an 
estimate of the labor requirement for 
erection. When equipment is purchased on 
an erected basis, as with items such as 



silos and large storage tanks, it is un- 
necessary to estimate erection labor, 
because its cost is included in the 
equipment cost. 

Equipment and erection labor costs 
represent less than half the cost of 
building a plant. Other items include 
foundations, buildings, structures, insu- 
lation, instrumentation, electrical in- 
stallation, piping, and painting. To 
obtain these costs, the total uninstal- 
led equipment cost is multiplied by a 
factor. 

Factors based on the type of plant or 
operation, and material of construction, 
are used for estimating the costs of 
structures, insulation, instrumentation, 
piping, and painting for each plant sec- 
tion. They are obtained from the litera- 
ture, nonpublished estimates, and through 
consultations with other engineering cost 
estimators. When the factors have been 
selected, they are entered in equipment 
cost summary tables for use in calculat- 
ing equipment installation costs, as 
shown in figure 3. 

Although most estimators use factors 
for foundations, electrical installation, 
and insulation, the Process Evaluation 
group has developed equations to estimate 
these costs separately for each piece of 
equipment. A factor is then calculated 
for each of these items. 

Foundation costs are based on equipment 
weight, vibration effect, and typical 
soil loadings. For common items of 
equipment, the costs of concrete, rein- 
forcing steel, and construction labor 
have been estimated for a range of 




1 2 3 4 5 6 7 8 910 
FILTER AREA, 1 2 ft 

FIGURE 2.— Cost of horizontal vacuum belt filters. 2nd 
quarter 1986. 



TABLE _. - Equipment cost summary 
Item Equipment 1 
$ 



Labor 



Total 



Total, 



Total equipment cost x factor indicated: 

Foundations, x , 

Structures , x , 



Instrumentation, x 

Electrical, x 

Piping, x .. . , 

Painting, x ., 



Total. 



Miscellaneous, x 



Total direct cost , 

Field indirect, 10 pet of total direct cost, 
Total construction cost , 



Engineering, 5 pet of total construction cost, 
Administration and overhead, 5 pet of total 
construction cost , 



Subtotal , 

Contingency, 10 pet of above subtotal...., 
Subtotal , 

Contractor's fee, 5 pet of above subtotal, 
Section cost , 



^asis: M and S equipment cost index of 



FIGURE 3.— Equipment cost summary table format. 



equipment sizes. The results of these 
calculations were used to prepare 
equations for estimating the cost of 
foundations for each piece of equipment. 
For nonstandard items of equipment, the 
foundations are designed separately, 
using standard engineering techniques. 

The costs for installing the electrical 
work for each motor size have been esti- 
mated for typical plant conditions and 



are used in the plant cost estimates. 
The costs for wire, boxes, switchgear, 
labor, etc. , were included in these 
standard designs. 

Building costs for various types of 
buildings are estimated from square-foot 
costs. Design considerations include 
building height, type of construction, 
and use. Building sizes are based on the 
equipment layout prepared for each plant. 



Depending on plant location, the estima- 
tor determines which equipment must be 
housed and which can be erected outside. 

A miscellaneous factor of 5 to 10 pet, 
depending on the detail used in itemizing 
equipment, is added to each plant section 
to cover the cost of small items not 
separately listed. 

Where a tailings pond or other disposal 
area is needed, its construction cost 
must be estimated and added to the 
capital cost. 

After the direct costs are determined, 
the field indirect, engineering, admini- 
stration and overhead, contingency, and 



contractor's fee are then estimated. 
Typical percentage values of these costs 
are shown in figure 3. Each of these 
components is defined in appendix B. 

After preparing equipment cost summary 
tables for each plant section, the total 
section costs are tabulated in an esti- 
mated capital cost table, such as figure 
4. Several other cost items are included 
in this table: a steamplant (if needed), 
plant facilities, plant utilities, and 
interest during construction. Percentage 
values used for plant facilities and 
plant utilities are shown in figure 4. 
Items included in plant facilities and 



TABLE 



- Estimated capital cost 1 



Fixed capital: 

section $ 

section 

Tailings pond 

Steamplant 

Subtotal 

Plant facilities, 10 pet of above subtotal 

Plant utilities, 12 pet of above subtotal 

Basic plant cost 

Catalyst 

Escalation costs during construction 

Total plant cost 

Land cost 

Subtotal 

Interest during construction period 

Fixed capital cost 

Working capital: 

Raw material and supplies 

Product and in-process inventory 

Accounts receivable 

Available cash 

Working capital cost 

Capitalized startup costs 

Subtotal 

Total capital cost 



^asis: M and S equipment cost index of 



FIGURE 4.— Estimated capital cost table format. 



plant utilities are tabulated in appendix 
B. The steamplant size is based on the 
process steam requirements (quantities 
and pressure) plus an allowance for 
distribution losses. 

The capital cost of a catalyst must 
also be included, and it must be depreci- 
ated in the operating cost if the origi- 
nal amount cannot be recovered. Many 
times an extractant or ion-exchange ma- 
terial must be considered in the same 
manner. 

To allow for high inflation rates, such 
as occurred during the mid 1970's, a fac- 
tor for inflation during construction may 
be included in the estimates. The costs 
of many equipment items are quoted on the 
basis of an index when delivered. Thus, 
a firm cost is unknown until the item is 
shipped. To compensate for this problem, 
an inflation factor equivalent to the 
current inflation rate is added to esca- 
late the basic plant cost. During per- 
iods of low inflation, this item is not 
included in the estimates. 

Although land cost is also included in 
the plant cost by many evaluators, the 
Bureau cost estimates do not include it 
since the plant location is not selected, 
and its cost can be recovered after clos- 
ing the plant. 

To determine the total fixed capital 
cost, the interest during construction is 
determined by calculating the interest 
payment for each month during the con- 
struction period. Because expenditures 
are not uniform, a curve (fig. 5) was 
developed to relate the expenditures to 
time (6). A value slightly less than the 
prime rate is normally used as the 
interest rate in the cost estimates. 

Working Capital 

In addition to fixed capital, working 
capital is estimated and included in the 
total capital cost. These cost categor- 
ies are also shown in figure 4. Working 
capital is defined as the funds in ad- 
dition to fixed capital, land investment, 
and startup costs that must be provided 
to operate the plant. Working capital is 
normally estimated from the following 
items: (1) Raw material and supplies 
inventory, (cost of raw material and 



100 




100 



20 40 60 

CONSTRUCTION DURATION, pet 

FIGURE 5.— Capital expenditure-time relation curve. 



operating supplies for 30 days), (2) 
product and in-process inventory, (total 
operating cost for 30 days), (3) accounts 
receivable, (total operating cost for 30 
days), and (4) available cash (direct 
expenses for 30 days). Although 30 days 
is used for calculating each of the pre- 
vious items, this time period is adjusted 
when necessary; for example, if the mine 
that supplies the ore operates 6 months 
per year, the time period for raw ma- 
terials and supplies inventory must be 
adjusted. 

Capitalized Startup 

Startup costs are also included in the 
cost studies. Usually, these are esti- 
mated as 10 pet of the fixed capital 
costs, of which 1 pet is capitalized and 
shown in the capital cost table. The 



10 



remaining 9 pet are assumed to be first- 
year operating costs; however, they are 
not included in the operating cost table, 
which represents a typical year. These 
startup costs are considered in the dis- 
counted cash-flow analysis. A 3-month 
startup period is usually considered, 
during which, the production level is 
assumed to average 50 pet of the design 
capacity. 

OPERATING COSTS 

A factoring technique is also used for 
estimating operating costs. For plants 
operating 3 shifts per day, 7 days per 
week, 330 to 350 d/yr of operation over 
the life of the plant is used for cost 
calculations. This allows downtime for 
inspection, maintenance, and unscheduled 
interruptions. When operating less than 
3 shifts per day, 7 days per week, it is 
assumed that maintenance is performed 
outside of the normal operating period. 

Operating costs are divided into di- 
rect, indirect, and fixed costs. Items 
included in operating components are 
shown in appendix C, and typical cost 
factors are shown as percentages in 
figure 6. 

Direct 

Direct costs include raw materials, 
utilities, direct labor, plant and equip- 
ment maintenance, payroll overhead, and 
operating supplies. Quantities of raw 
materials, which include reagents, are 
taken directly from the material balance. 
The cost for each raw material is taken 
from published prices or producer's quo- 
tations. Freight costs are usually in- 
cluded as part of each raw material cost 
when the plant location is specified. 
Ore cost is based on mining cost and 
sometimes includes a profit. Concentrate 
costs or values are based on smelter 
schedules. 

Utilities include electricity, water, 
fuel, and steam. Electric power require- 
ments are determined by calculating the 
actual power requirement needed for each 
piece of equipment before selecting the 
motor. The length of time each motor 
operates is included in the calculation. 



Electric power requirements for electro- 
lytic cells, etc., are also added. 
Electric power requirements for lighting 
and air conditioning In offices, labora- 
tories, and control rooms are estimated. 
These requirements are based on building 
type and size. The total electric power 
is then multiplied by the rate that would 
be expected in the area where the plant 
is built. The demand charge is included 
in the electric power rate. 

Water requirements are divided into 
process and cooling water. The quantity 
of process water is based on the material 
balance plus make-up water for cooling 
towers and the steamplant. Because 
process water costs are normally small, 
average water costs are used instead of 
costs specific to plant location. Cool- 
ing water requirements are based on ther- 
modynamic calculations. Depending on 
plant location, cooling water may be ob- 
tained from rivers, wells, or cooling 
towers. If towers are used, make-up 
water requirements are estimated. 

Plant location, process requirements, 
and fuel costs (including freight) are 
considered when selecting the fuel to be 
used in each plant. Some operations, 
such as alumina calcination, require a 
special fuel such as natural gas or 
sulfur-free oil, while other operations 
can use any fuel. If process require- 
ments do not dictate the choice, a cost 
comparison including equipment costs is 
made to select the least expensive fuel. 
In some plants, several fuels may be 
selected for different operations. Some- 
times, it is even possible to use an 
offgas from a chemical operation as a 
fuel. Where steam is used for heating, 
it may be purchased from another opera- 
tion or produced in a steamplant. 

Direct labor cost is determined by 
multiplying the assigned operating posi- 
tions by multipliers, depending on the 
days per week and shifts per day of the 
operation. These multipliers are shown 
in table 1. Supervision is estimated as 
15 pet of the labor cost. 

Plant maintenance is separately esti- 
mated for each piece of equipment and for 
buildings, electrical system, piping, 
utility-distribution systems, and plant 
facilities. This cost is divided evenly 



11 



TABLE . - Estimated annual operating cost 





Annual 
cost 


Cost per 
pound 
product 


Direct cost: 
Raw materials: 

at $ /st 


$ 


$ 


at $ /st 




Chemicals for steamplant water 










Utilities: 

Coal at $ /st 
















Direct labor: 












Plant maintenance: 






Supervision, 20 pet of maintenance 








Total 






Payroll overhead, 35 pet of above 
Operating supplies, 20 pet of plant 














Indirect cost, MO pet of direct labor 




Fixed cost: 

Insurance, 1 pet of total plant cost... 










Credit: 











FIGURE 6.— Estimated annual operating cost table format. 



12 



between labor and materials, with 20 pet 
of the labor cost added for supervision. 

TABLE 1. - Multipliers for labor 
assignments 



Days per 
week 


Shifts 
day 


per 


Multipliers 


7 


3 
2 
1 
3 
2 
1 


4.2 


7 


2.8 


7 


1.4 


5 


3.0 


5 


2.0 




1.0 



Payroll overhead, estimated as 30 to 35 
pet of direct labor and maintenance 
labor, includes vacation, sick leave, 
social security, and fringe benefits. 
The cost of operating supplies is esti- 
mated as 10 to 20 pet of the cost of 
plant maintenance. Operating supplies 
include items such as filter cloth, 
lubricating oil, gasoline and diesel 
fuel, instrument charts, etc. The cost 
of grinding balls and rods are shown 
separately under raw materials, because 



they are not considered a supply item and 
are directly related to the abrasiveness 
of the ore. 

Indirect 

Indirect costs are estimated as 40 pet 
of the direct labor and maintenance 
costs. The indirect costs include the 
expenses of control laboratories, ac- 
counting, plant protection and safety, 
plant administration, marketing, and 
company overhead. Research and overall 
company administrative costs outside the 
plant are not included. 

Fixed 

Fixed costs include local taxes (ex- 
cluding income taxes), insurance, and 
depreciation. Both taxes and insurance 
are estimated at 1 pet of the fixed capi- 
tal cost. Depreciation is calculated 
on a straight-line basis using 10 to 
20 yr depending on practice within the 
individual industry. 



PROFITABILITY 



Industry is primarily interested in 
potential profits in any venture. Thus, 
one must consider profitability in ad- 
dition to capital and operating costs. 
Today, a number of techniques are used 
for estimating profitability. Many text- 
books (]_~2) contain discussions of the 
advantages and disadvantages of each 
calculation method. 

Two of the more important techniques 
are used in the evaluations. The first 
is a simple payback period, which can be 
calculated from a selling price. The 



second is an interest rate of return 
based on a discounted cash-flow analysis. 
This technique considers the time-value 
of money, and compares the profits from a 
venture with the interest that would be 
earned if the capital were invested in a 
bank. The results of this discounted 
cash-flow analysis are presented as an 
interest rate of return when the selling 
price is known or the interest rate of 
return can be graphically presented to 
show the profits versus selling price. 



USE OF ECONOMIC EVALUATIONS 



Performing an economic evaluation is 
only the first step in developing a pro- 
cess evaluation. Economic data must be 
broken down to show high-cost operations, 
utilities, raw materials, etc. Ad- 
ditional data needs are identified, 
and alternate technologies are often 



suggested for some of the processing 
steps. The effect of changing costs must 
be considered to provide research per- 
sonnel with information to help in 
developing a viable process. 

The estimated capital and operating 
costs for each section are examined to 



13 



identify high costs. If a section cost 
appears high in relation to others and it 
contains a number of unit operations, the 
section is divided into two or more sec- 
tions to identify the unit operation 
responsible for the high cost. 

For example, a steam requirement for 
evaporation may be very high. In this 
situation, two possible solutions must be 
considered; (1) could the use of multi- 
effect evaporators reduce the steam re- 
quirement, and (2) can the quantity of 
water added to the process be reduced. 
Each addition of water must be checked to 
determine if it could be reduced. This 
step requires the comparison of each 
operation with similar commercial prac- 
tices. If it appears that some of the 
water requirements could be reduced, it 
is suggested that research personnel in- 
vestigate the possibility of using less 
water and request a new evaluation when 
minimum water requirements are deter- 
mined. 

Sometimes suggestions are made to 
change a step or group of steps in a pro- 
cess to reduce costs. Occasionally, us- 
ing part of an existing process would be 
more economical. Often, the evaluation 
may only identify a costly step so that 
the researcher can replace or improve an 
operation. Thus, researchers know where 
to concentrate their efforts. 

A major advantage of preparing an eval- 
uation at early stages in a research in- 
vestigation is to show where additional 
data are needed. Assumptions are identi- 
fied in the process description and some- 
times listed to provide additional 
guidance to the researchers. 

Environmental problems are identified 
and solutions suggested where possible. 
Most researchers direct their attention 
to recovering the maximum quantity of 
the valuable minerals in an ore. They 



neglect the impurities and often do not 
obtain analyses for them. Because impur- 
ity information is needed when making a 
complete evaluation study, the informa- 
tion to identify potential environmental 
problems is available. Often these minor 
impurities can become a major disposal 
problem. If technology is available for 
solving a disposal problem, it is in- 
corporated into the evaluation. If tech- 
nology is not available, solutions are 
suggested where possible. 

Disposal costs are estimated to deter- 
mine how much money is available to treat 
the waste material. Using the cost of 
disposal as a basis, various techniques 
proposed by researchers and evaluators 
can be compared. Putting a lid on pro- 
cessing costs also helps to predict the 
overall viability of a proposed process. 

To aid technology transfer to industry, 
some of the economic evaluations are pub- 
lished independently, while others are 
included in publications describing the 
research. This availability of process 
cost information permits industry to com- 
pare new technologies with those cur- 
rently in use. 

These evaluations provide industry with 
guidance when considering Bureau work; 
for example, there is a published process 
evaluation involving a process that re- 
covers lead from scrap batteries (10). 
These published cost studies provide 
basic process requirements and cost data. 
Because the costs are presented in a for- 
mat that is easy to revise, changes can 
be quickly made. Any company can revise 
the costs with new cost data to fit the 
company's conditions and modify the 
studies for its location and policy. 
Thus, it is very easy for company manage- 
ment to assess the potential of a Bureau 
development. 



14 



REFERENCES 



1. Weaver, J. B., and H. C. Bauman. 
Cost and Profitability Estimation. Sec. 
25 in Perry's Chemical Engineer's Hand- 
book, ed. by R. H. Perry and C. H. Chil- 
ton. McGraw-Hill, 5th ed. , 1973, p. 12. 

2. Peters, M. S., and K. D. Timmer- 
haus. Plant Design and Economics for 
Chemical Engineers. McGraw-Hill, 3d ed. , 
1980, 973 pp. 

3. American Society of Mechanical En- 
gineers. Rules for Construction of Pres- 
sure Vessels. Sec. VIII, Div. 1, in ASME 
Boiler and Pressure Vessel Code. July 1, 
1983, 699 pp. 

4. Richardson Engineering Service, 
Inc. (San Marcos, CA). Process Plant 
Construction Estimating Standards. V. 4, 
1986, 1,240 pp. 

5. Western Mine Engineering (Spokane, 
WA). Mining Cost Service, ed. by 0. L. 
Schumacher, 1984, 263 pp. 



6. Bauman, H. C. Fundamentals of 
Cost Engineering in the Chemical Indus- 
try. Reinhold, 1964, 364 pp. 

7. Stermole, F. J. Economic Evalua- 
tion and Investment Decision Methods. 
Investment Evaluation Corp., 4th ed. , 
1982, 446 pp. 

8. Canada, J. R. , and J. A. White. 
Capital Investment Decision Analysis for 
Management and Engineering. Prentice- 
Hall, 1980, 528 pp. 

9. Jelen, F. C. (ed.). Cost and 
Optimization Engineering. McGraw-Hill, 
1970, 490 pp. 

10. Phillips, T. A. Economic Evalua- 
tion of an Electrolytic Process To Re- 
cover Lead From Scrap Batteries. BuMines 
IC 9071, 1986, 19 pp. 



15 



APPENDIX A. --HEAT CALCULATIONS 



A typical heat calculation output from 
a line printer is shown in figure A-l. 
The computer program was originally writ- 
ten for mainframe computers, but has been 
adapted for microcomputers. All upper- 
case letters are used for chemical com- 
pounds, thus CaC0 3 is shown as CAC03 in 
the printout. Solids are indicated as -S 
and liquids as -L to show the standard 
state of each compound. 

Heats of reaction are calculated at 
25° C using heat of formation data. Heat 



above 25° C in each entering stream is 
calculated and credited to the system. 
Heat leaving the system above 25° C is 
also calculated, and its requirement 
added to the system. The net heat is 
then calculated and shown as the gross 
heat requirement. Actual cooling water, 
fuel, or steam requirements are then cal- 
culated from this gross heat requirement 
after estimating heat losses for the type 
of equipment being used for the 
operation. 



-IEAT OF REACTIONS 



OATE: 12/10/1986 TI«E: 11:10:30 FILE: HT8609R 
MATERIAL GLANCE BASIS: 7 DPc OPERATION! 3 SPD, 7 OP* 



REFERENCE MATERIAL IS CAS-S 
2 CAS-S ♦ 1 CNH4)2C03-*'J 

2 CACU3-S t 2 NH4HS-AQ 

MEAT OF REACTIU.M = 2250.000 X 2000.000 X 
TOTAL HEA1 OF REACTIONS 



NO. OF "OLES IS 2 



»EIGHT IS 2250.000 TON 
t 1 "2O3-A0 t 

* ♦ 

-375.7484 s -0. I69086797E+10 BTU PER 0AY 
= -0. 1690867976+10 «TU PER DAY 



CALCIUK SULPHIDE 
CAS-S 
OTHER 

TOTAL 
TOTAL HEAT IN 



HEAT IN 

66. PEG C ( 151. DEG F) 
2250.000 TON = 

128.600 TON = 

2678.600 TUfl 
C ( 151. DEG F) = 



AMMCNIOK BICAPBONATE 


IN 


AT 90. DfcG C ( 


(NH4J2C03-AW 


... 


1495.100 TOl. 


H2C03-A0 


... 


967.200 TOt 


NH40H-AU 


... 


51.700 TON 


NH4HS-AG 


... 


162.000 TON 


H20-L 


... 


8068.100 TO?. 


TOTAL 




10750.100 TON 


TOTAL MEAT In AT 


90. 


DEB C ( 191. DEG F) 



0.521553160E+08 BTU PER Oil 
0.126760400E+08 »TU PER DAY 



0.648313560E*08 BTU PER DAY 



191. DEG F) 



0.807206640E+08 BTU PER DAY 

0.671402800E+08 BTU PER DAY 

0.135207610E +08 BTU PER DAY 

0.215091360E+08 BTU PER DAY 

0.ie8636352E-M0 BTU PER UAY 

0.206925440E»10 BTU PER BAY 



MCP* 
KCP = 



MCP= 
MCP* 
MCP = 
VCPs 
MCP = 



0.157 CAL/G-OEG K 
0.20C CAL/G-DEG K 



0.230 CAL/G-DEG K 

0.297 CAL/G-DEG K 

1.056 CAL/G-OEG K 

0.567 CAL/G-OEG K 

0.999 CAL/G-OEG K 



TOTAL HEAT I\ 



0.21340«57oE*10 BTU PER UAY 



CARBONATED SLJRRY 
CACU3-S 
OTHER 
Nh4HS-AQ 
NHIOh-AU 
H20-L 

TOTAL 



100. DEG C 

3121.500 TUN 

128.600 TON 

1756.000 TON 

51.700 TON 

B068.100 TOt 

13426.900 TON 



( 212. DEB F) 



TOTAL HEAT UUT AT 100. DEG C ( 212. DE& F) 



0.178767200E+09 BTU PER DAY 

0.231878780E+08 BTU PER DAY 

0.269017408E+09 BTU PER UAY 

0.156003780E+0B BTU PER DAY 

0.2176573ieE+10 BTU PER DAY 

0.266314650E+10 eT'J PER DAY 



MCP* 

MCPS 

MCP* 
"CP = 
.*CP* 



0.212 CAL/G-DEG K 

0.200 CAL/G-DEG K 

0.567 CAL/G-DEG * 

1.056 CAL/G-DEG K 

0.999 CAL/G-DEG K 



TOTAL HEAT OUT 



0.266314650E*10 BTU PER OAY 



TOTAL QUANTITY IN a 
TOTAL QUANTITY OUT * 
GROSS HEAT 



13429.000 TON 
13128.900 TON 



BTU PER DAY 



Abbreviations used: 
AQ Aqueous 
L Liquid 
MCP Mean heat capacity 



S Solid 
SPD Shift per day 



NOTE. --"Ton " indicates short tons. 



FIGURE A-1.— Example of heat calculation. 



16 



APPENDIX B. —ITEMS INCLUDED IN CAPITAL COST COMPONENTS 

Labor — Erection labor cost for setting equipment in place, which includes moving the 
equipment from its storage location. 

Foundation — Material and labor cost for equipment or equipment support foundation. 

Buildings — Process building costs for material and labor includes the following: 

Stairways 

Windows 

Elevators 

Plumbing 

Heating 

Ventilation 

Dust collection 

Air conditioning 

Sprinkler system 

Lighting 

Telephones 

Fire alarm 

Painting 

Structures — Material and labor cost for equipment structures includes the following: 

Equipment supports 

Platforms 

Ladders 

Pipe supports 

Insulation — Material and labor cost for insulation for equipment and piping. 

Instrumentation — Instrumentation cost includes instruments, installation labor, and 
instrument panels. 

Electrical — Material and labor cost for electrical includes the following: 

Wire 
Conduit 
Switches 
Panels 

Piping — Material and labor cost for process piping includes the following: 

Pipe 

Pipe hangers 

Fittings 

Valves 

Painting — Material and labor cost for painting equipment, piping, and equipment 
supports. 

Miscellaneous — Cost of minor items of equipment not included in the process equipment 
list. 



17 



Field indirect — Construction expenses includes the following: 

Construction, operation, and maintenance of temporary sheds, offices, roads, 

parking lots, railroads, electrical, piping, communications, and fencing. 
Construction tools and equipment 
Warehouse personnel and expense 
Construction supervision 
Accounting and timekeeping 
Purchasing, expediting, and traffic 
Safety and medical 
Guards and security personnel 

Travel and transportation allowance for craft labor 
Housekeeping 
Weather protection 
Equipment rental (construction) 
Permits, special licenses, field tests 
Rental of off-site space 
Fringe benefits 
Interest 
Taxes and insurance 

Engineering — Cost includes the following: 

Process engineering 

Project engineering 

General engineering 

Drafting 

Cost engineering 

Reproductions 

Scale model 

Administrative and overhead — Cost includes the following: 

Administrative 

Procurement, expediting, and inspection 

Travel and living expenses 

Contingency — Compensation for unpredictable events, i.e., 

Storms 

Floods 

Strikes 

Price changes 

Small design changes 

Errors in estimation 

Unforeseen expenses 

Contractor's fee — Contractor's home office expenses, fees, and profits. 

Plant facilities — Material and labor cost includes the following: 

Auxiliary buildings 

Administration offices 
Medical and dispensary 



18 



Cafeteria 

Garage 

Parts or stores warehouse 

Maintenance shops 

Electric 

Piping 

Sheet metal 

Machine 

Welding 

Carpenters 

Instrument 
Guard and safety 
Hose house 
Change house 
Personnel 

Smoking stations (in hazardous plants) 
Shipping office and platforms 
Control laboratories 
Fire-protection facilities 

Building services — same as those listed under process buildings 
Nonprocess equipment 

Office furniture and equipment 
Cafeteria equipment 
Safety and medical equipment 
Shop equipment 

Automotive heavy maintenance equipment 
Yard material-handling equipment 
Laboratory equipment 
Lockers and locker-room benches 
Garage equipment 
Shelves and bins 
Housekeeping equipment 

Fire extinguishers, hoses, fire engines 
Site development — if not included separately under site preparation 

Plant utilities — Material and labor cost includes the following: 

Power-distribution system 

Water-distribution system 

Air-distribution system 

Refrigeration-distribution system 

Fuel-oil distribution system 

Gas-distribution system 

Process sewers 

Sanitary sewers 

Storm sewers 

Fireloops and hydrants 

Electric substations 

Compressed air plant — nonprocess 

Incinerator 

Ash disposal — if not included in process design 

Waste disposal — if not included in process design 

Wells 

River intake 



19 



Primary water treatment 

Filtration 

Coagulation 

Aeration 
Secondary water treatment 

Deionization 

De mineralization 

pH control 

Hardness control 
Water storage 

Escalation — Costs during construction includes the following: 

Increase in equipment costs between start of construction and equipment delivery 
Increase in labor rate during construction period 

Land cost — Includes the following cost: 

Fees 

Property 

Surveys 

Site preparation — (Included in plant facilities in Bureau evaluations.) Labor and 
material cost for the following: 

Site clearing 

Grading 

Drainage 

Excavation 

Piling 

Roads 

Access 

On-site 
Walkways 
Railroads 
Fences 

Parking areas 
Other paved areas 
Wharves and piers 
Recreational facilities 
Landscaping 

Interest during construction period is as follows: 

Interest on average amount of borrowed money for total plant cost 

Working capital — Includes the following cost: 

Raw materials and supplies 
Product and in-process inventory 
Accounts receivable 
Available cash 

Capitalized startup cost — Includes the following cost: 

Plant modifications during startup 



20 

APPENDIX C. —ITEMS INCLUDED IN OPERATING COST COMPONENTS 

Maintenance — Maintenance is divided into labor and material components. Labor as 
follows: Pipe fitters, electricians, welders, etc. Materials are as follows: 
Replacement parts, nuts, bolts, gaskets, welding rods, oxygen, acetylene, etc., used 
in repair. 

Payroll overhead — Includes the following: 

Federal O.A.S.I. 

Worker's compensation coverage 

Contributions to pension, life insurance, etc. 

Vacation, holidays, sick leave, overtime premium 

Company contributions of profit sharing 

Operating supplies — Includes the following cost: 

Lubricating oil 

Instrument charts 

Wiping cloths 

Filter cloth 

Gasoline and/or diesel fuel 

Indirect cost* — Plant overhead which includes the following: 

Administration (plant supervision) 
Indirect labor 

Laboratory 

Technical service and engineering 

Shops and repair facilities 

Shipping departments 
Purchasing, receiving, and warehousing 
Personnel and industrial relations 
Inspection, safety, and fire protection 
Accounting, clerical, and stenographic 
Communications 

Telephone 

Mail 

Teletype 
Plant office custodial and plant protection 
Medical and dispensary 
Cafeteria and clubroom 
Recreational activities 
Local contributions and memberships 
Waste disposal 
Control laboratories 
Storage facilities 
Salvage 
General engineering 

*Company administrative and research and development costs outside the plant are not 
included here 

Taxes — Property taxes 



21 



Insurance — Includes the following: 

Liability 
Property 

Depreciation — Straight line — average for buildings and equipment 



U.S. GOVERNMENT PRINTING OFFICE: 1987 605-017/60064 INT.-BU.OF Ml NES ,P6H. ,PA. 28527 



10S6 461 



U.S. Department of the Interior 
Bureau of Mine*— Prod, and D«tr. 
Cochrane Mill Road 
P.O. Box 18070 
Pittsburgh. Pa. 15236 

0FRCIALJ3USINESS 
PENALTY FO« PHIVATE USE. S300 



J Do not wi sh to recei ve thi s 
material, please remove 
from your mailing list* 
"2 Address change. Please 
correct as indicated* 



AN EQUAL OPPORTUNITY EMPLOYER 




























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